If you have recently acquired a motor vehicle under a hire purchase or
conditional sale agreement, it may be regulated by the Consumer Credit
Act 1974 ('the 1974 Act'). The easiest way to find out is
to dig-out your agreement and look in the top left hand corner. If
it says "regulated by the Consumer Credit Act 1974" then your agreement
is 'regulated'. If it does not say so but if you are an individual
and your total amount of credit is less than £25,000 then the agreement
should be regulated by the 1974 Act. If it doesn't say it
is, then take advice as soon as possible!

So, if your agreement is regulated
by the 1974 Act what happens if you fall in to arrears? There are
three options:

the creditor (i.e the person who you make your
payments to) can send you a default notice under section 87 of the 1974
Act;

you can give written notice at any time before the
'expiry' of a default notice to terminate the agreement, return the
motor vehicle and pay the difference between what you have paid and one
half of the total amount payable under the agreement; or

you can apply for a 'time order' under section 129 of
the 1974 Act which, if your financial difficulties are short term, may
give you more time to pay the instalments and stop the creditor from
ending the agreement and recovering the motor vehicle

Default Notices

Section 87(1) of the
1974 Act allows the creditor to send you a default notice giving you
fourteen days from the date you receive it to pay the arrears. The default notice must contain
all of the necessary information under the Consumer Credit (Enforcement,
Default and Termination Notices) Regulations 1983 ('the 1983
Regulations'), which includes

a statement saying the notice is a default notice
served under section 87(1) of the 1974 Act

a description of the agreement

the name and address of both the debtor and the
creditor

details of the breach (i.e. late payment) and, if the
breach can be remedied, the date by which it must be remedied or, if the
breach is not capable of remedy, the amount required to be paid after
the expiry of the specified date;

a statement saying: if the action required
by this notice is taken before the date shown no further
enforcement action will be taken in respect of that breach

a statement saying: if you do not
take the action required by this notice before the date shown
then the further action set out below may be taken against you

a clear and unambiguous statement saying that if the
action is not taken by the date specified, what it will do (for example,
if will it terminate the agreement and recovery possession of the motor
vehicle)

if the agreement is one of hire purchase or
conditional sale, a statement saying: but if you have paid at
least one third of the total amount payable under the agreement set out
below (or any installation charge plus one third of the rest of the
amount payable). The creditor may not take back the goods against
your wishes unless he gets a court order. (In Scotland, he may
need to get a court order at any time.) If he does take them back
without your consent or a court order, you have the right to get back
all of the money you have paid under the agreement set out below

if an amount of money is required to be paid, the
amount before deducting any rebate on early settlement

statements saying:

if you have difficulty in paying any sum owing
under the agreement or taking any other action required by this notice,
you can apply to the court which may make an order allowing you more
time

if you are not sure what to do, you should get
help as soon as possible. For example you should contact a
solicitor, your local trading standards department or your nearest
citizens' advice bureau

important - you should read this carefully

Under Regulations 33
of the Consumer Credit (Information Requirements and Duration of
Licenses and Charges) Regulations 2007 the default notice must from 1
October 2008 also include the following statement:

You have the right to end
this agreement at any time
before the final payment falls due. Note that this right may
be lost if you do not act before the date shown (after which we may
take action). If the date for
final payment has not passed and you wish to end this agreement, you
should write to the person to whom you make your payments. You will
need to pay £
if you wish to end this agreement by the date shown and we will be
entitled to the return of the goods. You will also be liable for
costs if you have not taken reasonable care of the goods.

If the default
notice fails to include all of the necessary information, it is likely
to be ineffective and will not allow the creditor to recovery the motor
vehicle unless you give your consent to the recovery. So, what can
you do if it is recovered against your wishes? The answer depends
on how much you have paid to the creditor.

If you have paid
more than one third of the total amount payable, section 90 of the 1974
Act states that the motor vehicle is 'protected' from repossession.
So, if the motor vehicle is recovered then, under section 91 of the 1974
Act you are entitled to a return of all of the money you have paid to
the creditor, regardless of how long you have had the motor vehicle.

If you have paid
less than one third of the total amount payable, the motor vehicle is
not protected from repossession. Instead, if it is recovered you
can say that the creditor has wrongfully interfered with your right to
possession of the motor vehicle. The Court cleared-up what this
meant in Chartered Trust plc v King (2001) WL 172107 and decided
that the debtor (i.e. you) are entitled to a return of all of the money
paid to the creditor. Again, it is irrelevant how long you have
had the motor vehicle.

Debtor's Termination

Under section 99 of
the 1974 Act a debtor under a hire purchase or conditional sale
agreement can, at any time before the agreement has ended, give written
notice to the creditor to end the agreement. Once the agreement
has ended, you have to return to the motor vehicle in a reasonable
condition and, if you have paid less than a half of the total amount
payable, you must pay the creditor the difference between one half of
the agreement and what you have paid. If you have paid more than
one half, you only have to return the motor vehicle and pay the arrears
at the date of your letter.

It is important to
remember that you can exercise your right under section 99 of the 1974
Act even if you have received a default notice as long as the date in
that notice has not passed. In First Response Finance Limited v
Donnelly [2006] GCCR 5901 the Court considered whether a debtor's
termination after the date specified in the default notice would limit
the amount payable to the creditor to the difference between one half of
the agreement and what had been paid. It decided that it did not
and the debtor was liable for the total amount payable under the
agreement minus the amount paid by the debtor and the motor vehicle's
net sale proceeds.

Time Order

Before you can apply
to the Court for a time order, you must be served with a default notice
or, when they become required by law, an arrears notice. Normally,
the Court only has the power to give you extra time to pay the arrears
but if the agreement is one of hire purchase or conditional sale, it can
make an order under section 130(2) of the 1974 Act to effectively
re-write the agreement.

The Court will
consider your financial position. It is therefore vital that you
send to the Court and the creditor as much information as possible about
your financial position and explain, with evidence, how it will get
better. If there is little prospect of it doing so, the Court is
unlikely after the decision in First National Bank plc v Syed
[1991] 2 All ER 250 to give you extra time to pay.

Summary

If you run into
financial difficulties under a regulated hire purchase or conditional
sale agreement, the first question to ask is whether you want to keep
the motor vehicle. If so, your only real option is to contact the
creditor and negotiate a payment plan. If it is unwilling to do
so, you can apply for a time order under section 129 of the 1974 Act if
you receive a default notice or, in the future, if you receive an
arrears letter. However, your application is unlikely to be
successful if you cannot show your financial problems are temporary.
If you do not want to keep the motor car then you should consider
whether it would be cheaper to terminate the agreement under section 99
of the 1974 Act. If so, send your letter by recorded delivery to
the creditor's registered office and make sure you keep a copy.
Then try to negotiate a way to pay the balance outstanding (if
anything).

Article First Published: 14 May 2007

Disclaimer

The views on this website are not necessarily those
of the Student Law Journal and is not intended to provide legal
advice. Any legal problems should be specifically addressed to a
solicitor.